Microsoft, in its effort to dominate the digital living room, unveiled a series of announcements at the E3 video game conference Monday including a deal to offer free Netflix videos through its Xbox 360 video game console.

Microsoft opened the annual expo with a news conference that outlined its strategy for beating rival Sony and winning the home entertainment battle. The partnership with Netflix, of Los Gatos, allows Microsoft to effectively double the amount of video content offered through its Xbox Live online service.

People who have both an Xbox Live Gold membership and a Netflix membership will be able to have free access to Netflix's library of 10,000 online movies and TV shows.

While the library doesn't boast all of the top titles Netflix offers through its mail service, it helps bolster Microsoft's current library of 10,000 videos, which it sells through its own Live Marketplace.

"There is no better way to deliver entertainment to your living room" than the Xbox 360, said Don Mattrick, senior vice president of Microsoft's video game business.

For Netflix, the deal expands on its ambitions to provide content directly to televisions. The company has previously announced plans to offer a similar service on set-top boxes from Roku and LG.

Final Fantasy XIII

Microsoft also took the wraps off more video game news, including a deal to offer Final Fantasy XIII on the Xbox 360 when the game launches worldwide. The franchise has never appeared on the Xbox console and has been a huge seller on the Sony PlayStation platform.

The Xbox 360 will also feature new exclusives this fall including Fable 2, Fallout 3, Resident Evil 5 and Gears of War 2. Analyst Michael Pachter of Wedbush Morgan Securities said Microsoft's strategy is helping push the Xbox 360 platform toward success.

"The surprise is the exclusives for the Xbox 360 and denying exclusives for Sony," Pachter said. "Every title that's not exclusive for Sony is a win for Microsoft."

Xbox Live's new look

Microsoft executives also unveiled a new look for its Xbox Live service that will feature for the first time avatars, or graphic representation of users. Players will be able to dress up their avatars and use them to interact with friends on a community channel and also play games with them online.

Microsoft announced that it's getting into the wildly popular music genre, which has helped make video games appealing to a wide range of casual gamers. This holiday, the company will release a title called Lips, a karaoke game that Microsoft said will also be able to play songs from a user's digital media players.

On Sunday, Microsoft announced plans to knock $50 off its $350 Xbox 360 Pro 20-GB model, which is being discontinued and will be replaced by a 60-GB Pro that will sell for $350 in August.

EA's Dynamic DNA

Electronic Arts showed off a new feature for its EA Sports label called Dynamic DNA, which incorporates daily statistics into games so that teams and players compete according to their real-world counterparts. EA demoed NBA Live 09 and showed how the game would be updated daily based on the latest available statistics, which then guide how players and teams respond.

The Redwood City company revealed videos of upcoming games like Dead Space, Mirrors Edge, Sims Animals and Dragon Age: Origins. EA also showed off a new online cross-platform identity system that allows gamers to sign in and take their achievements, likes and dislikes with them from game to game.

Will Wright, creator of the upcoming game Spore, said 1.87 million creatures have already been created by users in the past month in anticipation of the evolutionary video game in September. That's more than the 1.59 million species known on Earth, he noted.

EA and Id

EA also announced a new partnership with independent developer Id Software, the well-regarded studio that created the first-person shooter genre. EA will publish the next shooter title from Id, called Rage, denying Id's longtime publishing partner - and EA's rival - Activision.